Adjudication orders must be held in abeyance when portal glitches stall pending second tax appeals.

Adjudication orders must be held in abeyance when portal glitches stall pending second tax appeals.

Issue

Whether a tax authority can legally enforce an adverse adjudication order under section 74 based on alleged credit ineligibility while the taxpayer’s statutory second appeal is stalled due to technical portal glitches, and whether the revenue can bypass mandatory adjudication procedures outlined in administrative circulars for rejecting refunds based on credit ineligibility.

Facts

• The petitioner originally filed a tax refund claim for accumulated Input Tax Credit (ITC), which was successfully sanctioned by the lower tax authority.

• On an appeal preferred by the revenue department, the Appellate Authority reversed the initial sanction and summarily rejected the petitioner’s ITC refund.

• The petitioner sought to challenge this reversal by filing a second appeal and paid the mandatory 10% pre-deposit amount to initiate the process.

• Due to technical glitches on the official GST portal, the second appeal could not be formally taken on record or processed into the electronic system.

• While this second appeal remained trapped in system limbo, the respondent tax authority proceeded to pass a fresh, adverse adjudication order under section 74, alleging that the underlying credit was completely ineligible.

Decision

• The Court ruled in favor of the assessee and ordered the impugned adjudication order to be kept in absolute abeyance pending the outcome of the second appeal.

• It held that for any refund rejection based on the “ineligibility of credit,” the tax authorities are strictly required to initiate a formal adjudication process as mandated under Clauses 20 and 21 of the Circular dated November 18, 2019.

• It ruled that Clause 22 of the circular, which dispenses with standard adjudication proceedings, applies exclusively where a refund is rejected for procedural reasons other than credit ineligibility. Because this dispute directly centered on credit eligibility, invoking Clause 22 was legally impermissible.

• Recognizing the genuine systemic failure of the portal, the Court protected the taxpayer by staying the enforcement of the fresh section 74 order until the second appellate body fully reviews and decides the main dispute.

Key Takeaways

• Portal Glitches Protect Taxpayers: Taxpayers cannot be penalized or subjected to aggressive recovery orders if they have complied with appeal prerequisites (like pre-deposits) but are blocked from filing by a malfunctioning government portal.

• Strict Adherence to Circular Routing: When the revenue seeks to deny an ITC refund on substantive grounds like credit ineligibility, it must strictly follow the specialized adjudication pathways prescribed in Clauses 20 and 21 of Circular No. 125/44/2019-GST. It cannot take procedural shortcuts under Clause 22.

• Preservation of Appellate Rights: An administrative tax authority cannot execute sequential or consequential demand orders under section 74 while the foundational tax eligibility dispute is actively being contested in a higher appellate forum.